NOTE 10. COMMITMENTS AND CONTINGENCIES

Leases

The Company has non-cancelable operating leases for its office and laboratory facilities and it is obligated to make payments under non-cancelable operating leases for automobiles used by its sales force. Future minimum lease payments under our non-cancelable operating leases at December 31, 2015 were as follows (in thousands):

Year Ending December 31,	Lease Payments
2016	$	4,442
2017		3,309
2018		2,416
2019		1,578
2020		1,621
Thereafter		3,245

Total	$	16,611

In April 2012, the Company entered into an office and laboratory lease agreement to lease approximately 52,500 rentable square feet in Newark, California commencing on December 1, 2012. The Company occupied approximately 8,000 additional rentable square feet commencing in July 2015. The Lease will expire on November 30, 2022. However, the Company has the right to renew the lease for one additional five year term, provided that written notice is made to the landlord no later than 12 months prior to the lease expiration. The Company will have the one-time right to terminate the lease in its entirety effective as of November 30, 2017 by delivering written notice to the landlord on or before December 1, 2016. In the event of such termination, the Company will pay the landlord the unamortized portion of the tenant improvement allowance, specified additional allowances made by the landlord, waived base rent and leasing commissions, in each case amortized at 8% interest.

The Company was allowed to control physical access to the premises upon signing the lease. Therefore, in accordance with the applicable accounting guidance, the lease term was deemed to have commenced in April 2012. Accordingly, the rent free periods and the escalating rent payments contained within the lease are being recognized on a straight-line basis from April 2012. The Company will pay approximately $10.9 million in aggregate rent over the remaining term of the lease for the above premises. Deferred rent was approximately $1.7 million as of December 31, 2015 and $1.7 million as of December 31, 2014.

In December 2013, the Company entered into an operating lease agreement with Enterprise FM Trust (Enterprise) for the lease of vehicles to be used by the Company's sales force. The Company began receiving vehicles in the second quarter of 2014, with the lease terms ranging from 18 to 36 months. During the three months ended June 30, 2015, the Company entered into an additional lease with Enterprise, under the existing lease terms, for use by the additional sales representatives hired in the three months ended June 30, 2015 in connection with the NUCYNTA® acquisition and re-launch. The Company received the additional vehicles in the second half of 2015. The Company will pay approximately $5.7 million in aggregate rent over the remaining term of the lease for the vehicles. Rent expense relating to the lease of cars was $2.2 million and $1.1 million for 2015 and 2014, respectively.

Rent expense relating to the office and laboratory lease agreement was $0.6 million and $0.7 million for 2015 and 2014, respectively.

Legal Matters

Depomed v. NUCYNTA® and NUCYNTA® ER ANDA Filers

Actavis: In July 2013, Janssen Pharma along with Grunenthal GmbH filed a patent infringement lawsuit in the U.S. District Court for the District of New Jersey (D.N.J.) against Actavis Elizabeth LLC, Actavis Inc. and Actavis LLC (collectively, Actavis). The infringement claims relate to Actavis's Abbreviated New Drug Applications (ANDAs) seeking approval to market a generic versions of NUCYNTA® and NUCYNTA® ER before the expiration of U.S. Reissue Patent No. 39,593 (the '593 Patent), U.S. Patent No. 7,994,364 (the '364 Patent) and U.S. Patent No. 8,309,060 (the '060 Patent). Actavis asserted counterclaims of non-infringement and invalidity as to each of the patents asserted.

After acquiring the U.S. rights to NUCYNTA from Janssen, Depomed and Grunenthal filed an additional complaint in the D.N.J. against Actavis in September 2015, alleging that U.S. Patent No. 8,536,130 (the '130 Patent) will be infringed by Actavis's ANDA seeking approval to market a generic version of NUCYNTA® ER.

Alkem: In the July 2013 lawsuit described above, Janssen and Grunenthal also filed patent infringement claims against Alkem Laboratories Limited and Ascend Laboratories, LLC (collectively, Alkem) relating to Alkem's ANDAs also seeking approval to market a generic versions of NUCYNTA® and NUCYNTA® ER before the expiration of the '593 Patent and the '364 Patent. Alkem asserted counterclaims of non-infringement and invalidity as to each of the patents asserted.

In December 2013, Janssen and Grunenthal filed an additional complaint against Alkem asserting that the '130 Patent will be infringed by Alkem's ANDA seeking approval to market a generic version of NUCYNTA® ER. Alkem asserted counterclaims of non-infringement and patent invalidity. In August 2014, Janssen and Grunenthal amended the complaint against Alkem to add additional dosage strengths.

Roxane: In October 2013, Janssen and Grunenthal filed a patent infringement lawsuit in the D.N.J. against Roxane Laboratories, Inc. (Roxane). The infringement claims relate to Roxane's ANDAs seeking approval to market a generic versions of NUCYNTA® and NUCYNTA® ER before the expiration of the '593 Patent and the '364 Patent. In June 2014, in response to a Paragraph IV Notice from Roxane with respect to NUCYNTA® ER, Janssen and Grunenthal filed an additional complaint in the D.N.J. asserting the '130 Patent against Roxane. Roxane asserted counterclaims of non-infringement and patent invalidity as to each of the patents asserted, and an additional counterclaim of unclean hands with regard to the '364 Patent.

Watson: In July 2014, Janssen and Grunenthal filed a patent infringement lawsuit in the D.N.J. against Watson Laboratories, Inc. (Watson). The infringement claims relate to Watson's ANDA seeking approval to market a generic versions of NUCYNTA® oral solution before the expiration of the '593 Patent and the '364 Patent. Watson asserted counterclaims of non-infringement and patent invalidity as to each of the patents asserted.

All of the foregoing actions have been consolidated for pretrial purposes in the before the Honorable Claire C. Cecchi. At the time that the actions were commenced, Janssen was the exclusive U.S. licensee of the patents referred to above. On April 2, 2015, the Company acquired the U.S. rights to the NUCYNTA® ER and NUCYNTA® from Janssen. As part of the acquisition, the Company became the exclusive U.S. licensee of the patents referred to above. The Company has since been added as a plaintiff to the pending cases and is actively litigating them. The Court issued a "Markman" patent claim construction order in February 2016, and trial is currently set for March 2016.

Depomed v. Purdue and Depomed v. Endo Pharmaceuticals—Patent Infringement Litigation and Related Inter PartesReview Proceedings

The Company has sued Purdue Pharma and Endo Pharmaceuticals for patent infringement in separate lawsuits filed in the U.S. District Court for the District of New Jersey. The lawsuits arise from Purdue's commercialization of reformulated OxyContin® (oxycodone hydrochloride controlled-release) in the U.S. and Endo's commercialization of OPANA® ER (oxymorphone hydrochloride extended-release) in the U.S. The Company sued Purdue in January 2013 for infringement of U.S. Patent Nos. 6,340,475 (the '475 Patent) and 6,635,280 (the '280 Patent), which expire in September 2016. The Company sued Endo in April 2013 for infringement of the '475 Patent, the '280 Patent and U.S. Patent No. 6,723,340 (the '340 Patent), which expires in October 2021. On September 28, 2015, the district court stayed the Purdue lawsuit pending the decision of the U.S. Court of Appeals for the Federal Circuit (CAFC) in Purdue's appeal of the U.S. Patent Trial and Appeal Board's (PTAB) Final Written Decision described below.

In response to two petitions filed by Purdue, the U.S. Patent and Trademark Office Patent Trial and Appeal Board (PTAB) has instituted inter partes reviews (each, an IPR) of certain of the claims asserted in the Company's lawsuits against Purdue. An IPR is a proceeding that became available in September 2012 in accordance with the America Invents Act (the AIA). In an IPR, a petitioner may request that the PTAB reconsider the validity of issued patent claims on the basis of prior art in the form of printed publications and other patents. Any patent claim the PTAB determines to be unpatentable is stricken from the challenged patent. Any party may appeal final written decisions of the PTAB to the U.S. Court of Appeals for the Federal Circuit, but the PTAB's decisions denying institution of an IPR are non-appealable. Accordingly, if the PTAB finds a challenged claim patentable, or declines to institute an IPR as to a challenged claim, the IPR petitioner is estopped from asserting in a patent infringement lawsuit that these claims are invalid on any ground the petitioner raised or reasonably could have raised in the IPR.

In the IPRs initiated by Purdue, on July 10, 2014, the PTAB declined to institute an IPR as to two claims of the '475 patent and two claims of the '280 Patent. The PTAB instituted an IPR as to the other 15 claims of the '475 Patent and as to the other 10 claims of the '280 Patent asserted against Purdue. On October 14, 2014, Depomed submitted written responses to the Petitions, and on December 22, 2014, Purdue submitted replies. A PTAB hearing was held on March 19, 2015. On July 8, 2015, the PTAB issued Final Written Decisions confirming the patentability of all claims at issue. On August 3, 2015, Purdue filed notices of appeal to the CAFC, and filed its principal appeal brief on October 5, 2015. Depomed filed its principal appeal brief on November 19, 2015, and Purdue filed its reply appeal brief on December 7, 2015. Oral argument before the CAFC was held on February 4, 2015.

Endo filed two IPR petitions for each of the '475 Patent, the '280 Patent and the '340 Patent. The PTAB declined to institute an IPR as to three of Endo's petitions. The PTAB also declined to institute an IPR as to five claims of the '475 Patent, three claims of the '280 Patent and one claim of the '340 Patent in the Endo IPRs. The PTAB instituted an IPR as to the other 13 claims of the '475 Patent, as to the other ten claims of the '280 Patent and as to the other eight claims of the '340 patent asserted against Endo. On September 16, 2015, the PTAB issued a final decision finding un-patentable eight of the nine challenged claims of the '340 Patent. The Company has appealed that decision to the CAFC. The CAFC has not set a briefing schedule. On September 21, 2015, the PTAB issued final decisions confirming the patentability of all claims at issue of the '475 and '280 Patents. Endo has not appealed these decisions.

In November 2015, the Company entered into an agreement to acquire the U.S. and Canadian rights to cebranopadol and its related follow-on compound from Grünenthal GmbH (Grünenthal). Under the terms of the Grünenthal agreement, the Company entered into a settlement agreement with Endo to resolve the Endo lawsuit. As the formulator of OPANA® ER, Grünenthal indemnified Endo for certain intellectual property matters, including Depomed's ongoing patent infringement lawsuit against Endo. The settlement agreement grants Endo a non-exclusive patent license in the United States, and a covenant not to sue outside the United States, for the currently marketed form of OPANA® ER. The settlement agreement with Endo became effective on December 30, 2015.

Depomed v. Horizon Pharma plc and Horizon Pharma, Inc.

On July 7, 2015, the Company received an unsolicited, highly conditional proposal from Horizon Pharma plc and Horizon Pharma, Inc. (together, Horizon) to acquire all of the outstanding shares of the Company in an all-stock transaction (the Proposal). On July 12, 2015, the Board of Directors of the Company (the Board) adopted certain bylaw amendments, as well as a shareholder Rights Agreement (the Rights Agreement). On August 3, 2015, Horizon filed suit in the Superior Court for the State of California against the Company and the members of the Board, alleging that the bylaw amendments and the Rights Agreement violate the California Corporations Code and are thus unenforceable, and that the Board of Directors' actions in adopting these constituted a breach of fiduciary duty. Horizon moved for a preliminary injunction to invalidate the bylaw amendments and Rights Agreement. The court denied the motion on November 19, 2015. A case management conference has been scheduled for March 2016, and no trial date has been set.

Also on August 3, 2015, the Company filed suit in the Superior Court for the State of California against Horizon, alleging a breach of contract and other violations of California law by based on Horizon's possession and misuse of confidential information it obtained from Janssen Pharmaceuticals, Inc. (Janssen) under a confidentiality agreement (the Confidentiality Agreement) that Horizon entered into in connection with its failed attempt to acquire the U.S. rights to the drug NUCYNTA®, which the Company acquired from Janssen on April 2, 2015. On September 15, 2015, the Company filed an amended complaint. The Company has moved for a preliminary injunction to prevent Horizon from continuing with its unsolicited acquisition takeover attempt with the benefit and misuse of confidential information relating to NUCYNTA pending a trial on the merits of the Company's claim. The court granted the Company's motion on November 19, 2015. A case management conference has been scheduled for March 2016, and no trial date has been set.

Inter Partes Review Petition

On January 15, 2016, Rosellini Scientific, LLC (with nXn Partners, LLC as an additional real party in interest) filed with the PTAB a petition to request an Inter Partes review (the IPR Petition) of the '364 Patent. The PTAB is expected to make a decision regarding institution of an Inter Partes review within approximately six months after the filing date.

General

The Company cannot reasonably predict the outcome of the legal proceedings described above, nor can the Company estimate the amount of loss, range of loss or other adverse consequence, if any, that may result from these proceedings. As such the Company is not currently able to estimate the impact of the above litigation on its financial position or results of operations.

The Company may from time to time become party to actions, claims, suits, investigations or proceedings arising from the ordinary course of our business, including actions with respect to intellectual property claims, breach of contract claims, labor and employment claims and other matters. Although actions, claims, suits, investigations and proceedings are inherently uncertain and their results cannot be predicted with certainty, other than the matters set forth above, the Company is not currently involved in any matters that the Company believes may have a material adverse effect on its business, results of operations or financial condition. However, regardless of the outcome, litigation can have an adverse impact on the Company because of associated cost and diversion of management time.